And Now, The Killer Yen

Bertel Schmitt
by Bertel Schmitt
and now the killer yen

Once Japanese automakers have dug out from under the rubble, cleared the ports and start shipping again, they will face a possibly bigger problem: A killer yen that has accumulated strength in an absolutely abnormal fashion over the last few days.

It stands to reason that the currency of a country grappling with damages of around $200 billion would suffer along. However, this is not how it works here. Japan is not a debtor country. With nearly $900 billion in dollar reserves, Japan is one of the world’s largest creditors. Japan doesn’t need to print or borrow money. They simply make a withdrawal. As predicted last weekend, some of their money is coming home. And when large amounts of dollars are converted into yen, the yen goes up, the dollar goes down. Supply and demand.

Says The Nikkei [sub]: “Japanese investors held around $2 trillion in foreign assets, net of reserves, at the end of 2010. Speculators are betting a chunk of this will flow home as Japan begins to re-build and repair damage from the quake and ensuing tsunami, and insurance companies begin to pay out claims on life and property and casualty policies.”

“The yen bolted to all-time highs on speculation that Japanese insurers would be forced to bring money back home to settle huge quake-related damage claims,” writes Reuters. Before the disaster, a dollar bought around 82 yen, which already was seen as way too high. Now, a dollar buys only 78 yen, and we have seen spikes to 76.

The Japanese car industry is considered as not competitive if the dollar falls below the 85 yen mark. Moving production abroad helps to some degree. It shelters from the currency swings. Except when the books are closed. When overseas profits are counted, it makes a difference if a dollar converts to 76 yen instead of 86.

Maybe the Japanese central bank should seek the counsel of all the people who claimed that the yen had been manipulated and was artificially low. I bet tips on how to lower the price of the Japanese currency would be highly welcome.

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  • L'avventura L'avventura on Mar 17, 2011

    Until this situation with the nuclear reactor isn't resolved we should see more volatility. I think I've said before in the other article, but this spike in yen is short-term. Primarily due to the uncertainty associated with the fluid situation after the disaster. Obviously there is some repatriation of yen as Japanese companies seek liquidity to pay for damages. The sudden spike however, is more due to speculation by carry-traders. Which borrow money in yen (due to low-interest rates and strong yen) and invest money in assets denominated in foreign currency. However, we should see a weakening of the yen once the rebuilding effort starts, there will be a massive expansion of the JPY money supply as Japanese government injects the economy with rebuilding money. Which should be in the scale of the hundreds of billions of dollars. BoJ has already injected the banking system with 6 trillion yen today. What is a question however is if the BoJ will intervene directly in the fx markets. The conversation that Yosano had with Obama this morning may indicate that. But its a double edged sword, a high yen keeps rebuilding costs low for the Japanese government, a weak yen helps Japanese companies that have been hit with the disaster.

    • See 1 previous
    • L'avventura L'avventura on Mar 17, 2011

      You're exactly right in that government forex intervention is a complete waste of money. There is very little long term durable gains to be made. But in general we need to take a step back, and look at this not from the volatile situation we are in right now, and from a larger lens that looks beyond the next two quarters (which will see negative GDP in Japan) and rise in yen. Most investors are on hold until this nuclear disaster gets a definitive trajectory. Longer term we know that there will be reconstruction. The question becomes not of 'if' the money supply will grow, but rather of 'how much'. But, yes, Japan's debt levels will raise, consumption taxes will raise as well, and austerity measures delayed. But we will see BoJ adopot QE like measures (there is no other way), and just as importantly US' QE-II will be winding down at the same time. Meaning that the downward pressure on the dollar will be lifted as downward pressure on the yen is applied. The real question is if Japanese politics are up to it, the DPJ is a mess, and there is no real leadership. But the Japanese have a history of rebuilding and reconciling in times of tragedy, destruction and rebuilding are built into their history and culture. The silver lining to this very dark cloud is that it may be the true impetus for the Japanese to finally tackle long standing problems and find uniformity in their fragmented politics. Dealing with the yen is just one part of this.

  • Obbop Obbop on Mar 17, 2011

    My decrepit feeble age-impaired memory informs me that in 1975 forking over one USA greenback resulted in 220 Yen tossed back. My astonishingly vile inability to conceive "mathematically" has always bothered/impaired me. Perhaps the time when I was playing with the car door handle while Mom was driving and was around 2 years old or so(she related in later life she was going around 35mph) and I fell out, landing upon my rather misshapen head...........and no medical care sought (a different era back then) perhaps the portion of the brain involved with "math" thinking was affected? Where's " Fantastic Voyage" when needed? Anyway............ the Old Disgruntled One does appreciate topics, comments, etc involving ,monetary topics and much but not ALL can be assimilated. Not expecting the Herd to explain but feel free to maximize examples and/or use anecdotes, whatever but in no way do I want to impair the free-flow of writing or conversations. Muchas gracias!!!!!!!!!!

  • ToolGuy CXXVIII comments?!?
  • ToolGuy I did truck things with my truck this past week, twenty-odd miles from home (farther than usual). Recall that the interior bed space of my (modified) truck is 98" x 74". On the ride home yesterday the bed carried a 20 foot extension ladder (10 feet long, flagged 14 inches past the rear bumper), two other ladders, a smallish air compressor, a largish shop vac, three large bins, some materials, some scrap, and a slew of tool cases/bags. It was pretty full, is what I'm saying.The range of the Cybertruck would have been just fine. Nothing I carried had any substantial weight to it, in truck terms. The frunk would have been extremely useful (lock the tool cases there, out of the way of the Bed Stuff, away from prying eyes and grasping fingers -- you say I can charge my cordless tools there? bonus). Stainless steel plus no paint is a plus.Apparently the Cybertruck bed will be 78" long (but over 96" with the tailgate folded down) and 60-65" wide. And then Tesla promises "100 cubic feet of exterior, lockable storage — including the under-bed, frunk and sail pillars." Underbed storage requires the bed to be clear of other stuff, but bottom line everything would have fit, especially when we consider the second row of seats (tools and some materials out of the weather).Some days I was hauling mostly air on one leg of the trip. There were several store runs involved, some for 8-foot stock. One day I bummed a ride in a Roush Mustang. Three separate times other drivers tried to run into my truck (stainless steel panels, yes please). The fuel savings would be large enough for me to notice and to care.TL;DR: This truck would work for me, as a truck. Sample size = 1.
  • Art Vandelay Dodge should bring this back. They could sell it as the classic classic classic model
  • Surferjoe Still have a 2013 RDX, naturally aspirated V6, just can't get behind a 4 banger turbo.Also gloriously absent, ESS, lane departure warnings, etc.
  • ToolGuy Is it a genuine Top Hand? Oh, I forgot, I don't care. 🙂